Moldova - Overview of economy

Moldova is among Europe's poorest countries. Before Moldova gained its independence from the USSR in 1991, the Soviet regime developed some of Moldova's industries, but Moldova's favorable climate, rich farmland, and lack of mineral resources defined its role as the USSR's primary supplier of fruits, vegetables, wine, tobacco, and processed foods. Soviet planners forced Moldova to develop those economic sectors, and Moldova imported its oil, coal, and natural gas from other USSR republics. The loss of Soviet markets and cheap energy sources with independence in 1991 caused a steep economic decline, energy shortages, and unemployment. Interethnic war, the Russian crisis of 1998, the problems

of Ukraine and Romania (which, with Russia, receive 70 percent of Moldova's exports), and record droughts combined for the sharpest gross domestic product (GDP) decline seen in a former Soviet republic; in 1998, the economy reached only 33 percent of its size in 1989. By 1999, GDP was $2,033 per capita.

Since independence, Moldova has followed a path toward reform, introducing a convertible currency, freeing prices from state control, ending subsidies for state-owned enterprises, privatizing the formerly collectivized farmland, removing export controls, and freeing bank interest rates with assistance from the International Monetary Fund (IMF) and the World Bank. (Taken together, these corrections are called structural reform because they change the structure of the economy.) Mass privatization in 1994 transferred to the private sector 1,142 large and medium and 1,093 small enterprises. Cash privatizations were less successful; tenders for the Moldtelecom (the telephone company) in 1998 and the tobacco firm Tutun in 1996 were canceled, and other privatization deals were disappointing. In 1997 and 1998, 223 enterprises were sold at auctions, generating $4.45 million; foreign direct investment reached $7.6 million.

The country's external debt was estimated at $1.3 billion (December 1999) and posed a major challenge to the economy. The country handed 50 percent of its gas pipelines to Russia's gas monopoly Gazprom, its biggest creditor (Moldova owes it $320 million and Transnistria another $400 million). The country is dependent on economic aid, and the International Monetary Fund (IMF) and the World Bank have granted $547 million between 1992 and 1999.